Kim Bayley, director general of the Entertainment Retailers Association (ERA), said that breaking the £1bn barrier in digital was an "incredible achievement", but also noted that physical sales still dominate the market.

"This reflects their huge investment in new and innovative services - which means you can buy music, video and games literally at any time of the day and wherever you are," she said in a statement.

"At the same time I suspect that many people will be surprised to learn just how resilient the physical business still is - with three-quarters of entertainment sales still on disc.

"Downloads offer convenience and portability, but people still seem to value the quality and tangibility of a physical product."

Combined sales of music, video and videogames were down 12% to £4.21bn last year, with the biggest slump coming in video games, down 17.4%.

Baylay said that this overall fall was partially due to the Olympics in London last summer, as many music, video and games makers held back big releases to avoid a clash with the sporting spectacular.

"The dearth of attractive releases during summer 2012 was clearly a significant factor [in the sales fall]," she said.

"Suppliers need to do more to rebalance their release schedules and improve the quality of their releases. No retailer can afford to pay overheads on a store for 52 weeks of the year if all the key releases are going to be concentrated in the last quarter.

"And entrepreneurs will think twice about investing in new digital services if releases fail to excite the public. Luckily the message appears to be getting through and we look forward to being able to offer the public a much better release slate in 2013."